Peter Buckingham of Andrew Granger & Co explains the second phase of the Government’s Help to Buy scheme.
It came as a surprise to many people working in the property industry when the Government brought forward the second phase of the Help to Buy scheme to the start of October.
Originally scheduled to come into effect from January 2014, many in the industry have concerns that the Government may be acting too hastily, risking damage to the recovering housing market, while supporters argue that it will help stimulate further growth.
Getting first-time buyers onto the property ladder is essential to injecting movement into the market, but many young people are still struggling to raise the funds necessary for a deposit, which is where Help to Buy comes in.
Phase one, which came into effect in April, gave buyers access to a 20 per cent equity loan from the government on top of their five per cent deposit. While phase one applied only to newly-built properties bought by first-time buyers, phase two applies to all properties with a ceiling value of £600,000 and so more buyers are eligible for the scheme.
Phase two enables borrowers to put down a deposit of as little as five per cent which has created concern that this could spark a return to irresponsible lending.
In a bid to prevent this happening, the scheme excludes interest-only and offset mortgages, while borrowers will still have to undergo rigorous financial checks.
Those seeking lending for second homes and/or buy to let will not be eligible.
There is also an element of surety built into phase two.
Lenders take part in the scheme pay a fee to the Government, providing a seven-year taxpayer guarantee covering 15 per cent of the loan value which can be called in if the borrower defaults.
While the abruptness of phase two’s introduction has taken many lenders by surprise, at least two-thirds have now signed up to the scheme.
Some lenders have already launched new products through the scheme, while others such as HSBC and Virgin Money will release theirs over the next two or three months.
Interestingly, some lenders are offering deals with better rates than those available through Help to Buy.
For example, Clydesdale and Yorkshire Banks have cut the rates on their three-year fixed rate mortgages for those with a five per cent deposit to lower than those currently offered through the Help to Buy scheme.
Phase one certainly seems to have had an impact on the market with the Council of Mortgage Lenders reporting the number of loans approved for first-time buyers rose by 33 per cent in August 2013 compared with August 2012.
With a two-bed property in Harborough currently fetching around £145,000, the Help to Buy scheme leaves buyers needing to find just over £6,000 as a deposit – a more attainable figure for many.
It remains to be seen what impact phase two will have on the overall market, but it seems to be good news for now – for first-time buyers at least.
By Peter Buckingham. Mr Buckingham is head of residential sales at Andrew Granger & Co estate agents.
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